Generally, the principle of people facing tradeoffs implies that everything has a price. According to Mankiw (2020), this principle states that to get something, people have to give up on something else in return. Following this logic, people constantly make decisions based on their current resource pool. In addition, this principle emphasizes the scarcity of available resources and that people cannot have every product or service at their disposal.
The article “UAE shoppers have a clear sight on Goal” illustrates the coincidence of two popular events in Dubai – the start of the FIFA World Cup on the 20th of November and the Black Friday promotions on the 25th of the same month. The coincidence can be considered historical due to the number of opportunities for retailers and consumers to seal the best deals.
Such a critical sales period perfectly depicts the principle of facing tradeoffs. During this time, retailers can engage in profitable promotional strategies, lowering the price in exchange for increasing the sales volume. In the meantime, consumers become more decisive in trading off their financial resources for tangible and intangible goods due to their high cost-efficiency. In other words, the article showcases the events’ influence on people’s decision-making.
The idea of the cost of an opportunity is strategic by itself. The world of business is filled with opportunities, but managers often have to choose only one. In this context, opportunity cost will be the cost of the second-best option available (Mankiw, 2020). It will not present itself in the company’s account directly, but it can provide valuable insight for future planning of the company’s strategy.
The “New Unemployment Insurance Scheme, explained” article provides information regarding the Ministry of Human Resources and Emiratisation initiatives in the field of social security. According to Hussain (2022), employees will be able to receive cash compensation if they are terminated from their jobs after January 1st, 2023. In addition, the article lists specific information on insurance costs and calculations.
In this case, every employee is presented with a choice to ignore or sign up for insurance. If they ignore the insurance, they will save Dh5 per month, which is the insurance cost (Hussain, 2022). However, they will also lose a potential three-month compensation equal to 60% of their basic salary in case of job termination (Hussain, 2022). The final decision might involve other factors, but the basic costs are enough to illustrate the Opportunity cost principle.
The third economic principle implies logic and rationale in people’s decision-making. In particular, people aim to achieve maximum utility and satisfaction by consuming a certain good or service (Mankiw, 2020). This principle is connected to the marginal benefits and costs of consumption. Due to diminishing returns from the consequent consumption, it will only last while benefits are greater or equal to the associated costs.
The article “Need a sleep holiday over the weekend?” studies the situation when people prefer to sleep instead of going out on their free days. In this context, the author also mentions the so-called “sleep tourism,” when people devote their whole vacations to staying in bed and catching up on their lost sleep time (Roy, 2022). This way, the article warns about the danger of sleep deprivation and highlights the importance of proper rest.
The decision between an active and passive rest illustrates the third principle in practice. While on vacation, traditional activities such as sightseeing have the marginal benefit of experiencing something new and unusual at the marginal cost of energy spent. As the desire for the unusual is fulfilled, its benefit decreases to the point that it is no longer worth the required energy. It serves as a reason to stay in the hotel room instead, to either sleep or simply enjoy the absence of work.
The 7th Mankiw principle implies that governmental market interventions can positively impact the economy. It is a reminder of the government’s power to enforce rules and maintain order in the market. This way, it can encourage people to participate without the fear of fraud or unfair treatment. In addition to regulating, the government also has the ability and resources to intervene and contribute to market prosperity.
In the article regarding China’s financial market, Zhu comments on a recent Chinese governmental intervention. In light of the yuan’s descent, China’s central bank urged other banks to prepare to sell dollars in local units of offshore markets (Zhu, 2022). By simultaneously selling dollars and buying yuan, Chinese authorities plan to put a floor under their currency and save it from further declines.
Since the country’s budget is tied to federal reserves supported by dollars, there is a possibility of severe losses if its currency devalues too much. In this context, Chinese governmental authorities attempt to preemptively address the issue by giving the yuan room for stabilization. Such acts of intervention exemplify the 7th principle, showcasing the potential good these interventions can have on the market.
In the modern world, situations when goods or services do not have any adequate replacements, are rare and short-termed. More frequently, they are replaceable, or, in other words, have substitutes – other goods or services with minor perceived differences (Mankiw, 2020). They play an important role in the market since they motivate suppliers to change prices or invest in innovations to fight the competition.
The article “Tesla Loyalty and market share soar, but the Dominance of EV segment could wane” depicts the current situation in a relatively new market of electric vehicles. In particular, figure 1 illustrates the brand loyalty distribution between Tesla Inc. and its competitors. According to Libby (2022), the company has also increased its market share in the last six months. Nevertheless, newcomers in the EV market are bringing their substitutes to Tesla products.
The EV market is a perfect example of the “substitute” concept. In the beginning, it was a narrow, niche luxury market, but it registered a constant gradual growth mainly because of environmental concerns. Currently, new companies solely focused on EVs and old automobile enterprises such as BMW or Mercedez enter the EV market and compete for customers’ attention by either changing prices, introducing cheaper models, or modifying the existing ones.
Hussain, Z. (2022). UAE: Pay Dh5 per month to get up to Dh10,000 compensation after job loss – New Unemployment Insurance Scheme, explained. Gulfnews. Web.
Libby, T. (2022). Tesla loyalty and market share soar, but dominance of EV segment could wane. S&P Global Mobility. Web.
Mankiw, N. G. (2020). Principles of economics. Cengage Learning.
Nair, M. (2022). UAE shoppers have clear sight on goal – last 10 days of November with FIFA World Cup and Black Friday. Gulfnews. Web.
Roy, A. (2022). Need a sleep holiday over the weekend? Why it could be dangerous in the long run. Gulfnews. Web.
Zhu, J. (2022). Exclusive: China’s state banks told to stock up for yuan intervention. Reuters. Web.